The cashback market has been growing steadily for the past few years, but now it’s really taking off, thanks to the rapid increase in online shopping caused by COVID-19.
Andrew Clarke, the founder of Cashrewards, a local cashback platform that launched in 2014, told the Australian Financial Review in July that customer numbers were up 37% for the year to May, and revenue growth, while slower than pre-COVID, was still up a blistering 41%. The company is in the process of launching an IPO.
Meanwhile, Shopback, a Singaporean platform that launched in Australia in 2018, continues to attract investor interest. In March, it closed a US$75 million Series B round, bringing its total investment to over US$114 million.
The growth of cashback during COVID-19 comes off an already strong base. According to Finder.com.au, the share of Australians using cashback sites was 17% in 2018, and it’s undoubtedly higher today. In comparison, about 11% of Australians currently use buy now pay later apps like Afterpay, according to Roy Morgan.
Besides the overall increase in eCommerce during COVID-19, cashback sites have also benefited from growing price-consciousness due to the impact the pandemic has had on many people’s personal finances and employment.
With these factors driving the sector, it might be time to consider working with a cashback platform if you don’t already. Here’s what you need to know to figure out whether it’s the right fit for your business.
First, the basics
In case you’re new to the cashback concept, here’s how it works: cashback sites partner with a wide range of retailers in various categories, from fashion to travel to food, groceries and alcohol, and offer different discounts if customers make a purchase via a link on the website.
Each retailer pays the website a commission for acquiring the customer (generally a single-digit percentage of the sale, but it can be higher), and most cashback sites pass along the full commission amount to the customer in the form of a cash reward.
For the customer, it’s literally free money, they just need to register and link their bank account or card to the platform.
Second, the major players
The two major players in Australia’s cashback space are Cashrewards and Shopback. Cashrewards launched in 2014 and was the leading cashback provider until Shopback came on the scene in 2018. The Singaporean platform now claims to be the market leader.
Here’s an overview of the key stats of each platform and the biggest differences between the two.
The Aussie company works with over 1500 brands, including Apple, David Jones, Dan Murphy’s and The Iconic, and has at least 800,000 active users (this figure is from May 2020 and has likely grown since then). It has given back over $100 million to shoppers since launching six years ago, and helped over 7600 sick kids through its support of the Starlight Foundation. Cashrewards donates 1% of business equity and 1% of every cash reward to the charity.
Users can make purchases online (either by installing a browser extension or visiting the Cashrewards website) and via app. Cashrewards is unique in that it also offers cashback for shopping in-store.
Headquartered in Singapore with a small team in Australia, Shopback works with over 3000 merchants globally, including Taobao and Expedia, and has returned over US$100 million to over 20 million users, according to its website.
Angus Muffet, the company’s country manager in Australia, told the Australian Financial Review in February 2020 that Shopback had signed up more than 1000 brands in Australia, including many of the same names as Cashrewards, and over 1 million customers since launching here about 2.5 years ago. It has returned more than $11 million to local users in that time.
Users can make purchases online (either by installing a browser extension or visiting the Shopback website) and via app, but not in-store.
Third, the decision
So, should you be using cashback sites to acquire new customers and increase sales? With major online retailers like Amazon, eBay and The Iconic buying into the cashback concept, you might think it’s an automatic ‘yes’, but it’s worth looking at the pros and cons and considering whether it makes sense for your business.
The advantages are somewhat obvious: cashback sites have huge audiences, so if you’re in the market for new customers (and who isn’t), this can be a good place to find them. Cashback users also skew younger (these sites are especially popular with Gen Z shoppers), and unlike other advertising platforms, users tend to be in a shopping frame of mind when they arrive. Cashrewards claims that its retail partners see a 79% increase in order value, 36% increase in purchase frequency and 72% increase in incremental spend.
But there are also disadvantages: the popularity of these platforms means there’s a lot of competition for eyeballs, and a small cashback offer of 2% or 3% may not be enough to make your brand stand out. But can you afford to give up 7%, 10% or an even bigger slice of your sale? You’ll need to run the numbers to make sure any sales you generate are still profitable. At the same time, many retailers have shifted from a black-and-white view of new and repeat customers and started to think about customers in terms of their lifetime value. Cashback sites might be a very effective way to acquire new customers, but will these customers become repeat customers without the incentive of a cash reward? Are they actually worth the effort of acquiring in the first place? This is a much more difficult question to answer, and it might only be possible to find out by trial and error. Lastly, cashback sites by nature are very transactional, so they’re not suited to luxury brands or retailers that aim to offer a more premium customer experience.
Cashback sites aren’t the right fit for every business, but if you’re not a luxury brand, and your target customer is on the younger side, they’re probably worth looking into. Just make sure to run the numbers, so you know exactly how much cash you’re willing to give back.